The boards of many for-purpose organisations oversee a portfolio of investment assets. Returns on these assets may diversify income, support running costs, provide a buffer for difficult years, or be utilised to increase social impact or member services.
At Directors Australia, over the last five years we’ve seen a heightened focus by boards across all sectors on the risks and opportunities associated with ESG (environmental, social and governance) factors.
The elements of ESG include:
Positive ESG credentials may enhance an organisation’s reputation, help fulfil requirements for grants and tenders and attract customers, staff and donors. Similarly, a lack of consideration to bolstering organisational ESG credentials may have an adverse reputational impact.
One particular area where boards have been questioning is the alignment of their investment assets with the organisation’s values and purpose. There is a growing realisation that negative ESG impacts within the organisation’s portfolios may conflict with the positive impacts they strive to deliver.
Our advisory team recently worked with a not-for-profit board in the environmental sector. Directors had no visibility over their portfolio’s impacts on the natural environment they sought to protect. As part of a review of their investment governance, we worked with this board to understand their ESG beliefs, risk appetite and tolerances.
Each organisation will have a unique set of ESG principles based on their values and purpose. In this case, the board determined it had an appetite for investments with positive environmental impacts such as renewable energy, sustainable agriculture, and green property. The board resolved to exclude from the portfolio companies such as those associated with fossil fuels, environmental and cultural destruction, and violation of human rights.
Outcomes of this assignment included:
- development of an ESG Investment Policy, articulating the board’s ESG objectives, reporting requirements, positive portfolio inclusions and negative screens
- clarification of committee and board investment responsibilities
- a commitment to recruit an investment advisor with aligned ESG investment and reporting credentials; and
- a decision to incorporate ESG investment reporting within stakeholder communications.
ESG is now mainstream, and as such, a variety of ethical, green, sustainable and climate-related investment opportunities are available. Is it time your board had a closer look at what’s in your portfolio?
Directors Australia works with the boards of publicly listed, government, private, APRA-regulated and not-for-profit organisations across all sectors and industries Australia-wide to achieve real, ‘best fit’ corporate governance appropriate to the organisation’s nature, and thus enhance board and organisational performance.
Speak to Directors Australia today if you require independent governance advice or would like to discuss ESG considerations in more detail. Further information can be found on the Directors Australia website, by contacting us, or emailing Jane Crombie directly.
Jane Crombie
Board and Governance Specialist
